Why cash fares still rule in the taxi innovation space

September 16th, 2015

Until recently, Uber only accepted credit card or debit cards as payment for rides. But in a country like Kenya that is largely cash-based, it was only a matter of time before Uber questioned that strategy. In July 2015, Uber Kenya piloted the option to pay via cash or mobile money with a few users. Following the success of this pilot, Uber decided to make cash and mobile money payment an option for all potential customers. What does this mean for the innovative global brand, and what does it say about Kenya’s electronic payments space?

Why plastic alone doesn’t suffice

According to the Central Bank of Kenya June 2015 statistics, there are currently 220,475 credit cards and 12,477,834 debit cards in circulation. However, as favorable as these statistics may seem, FSD Kenya’s February 2015 study on enhancing the growth of plastic cards in Kenya depict that Kenyans are yet to fully adapt to the culture of using credit and debit cards for payments, especially in comparison to other markets around the world.

Introducing cash and mobile money payments is an opportunity for Uber to tap into the other segment of Kenyan society – the averag emwananchi that does not own a credit or debit card, or who owns one but doesn’t use it. Ideally, this would translate into a wider market for Uber. But currently, this is not the case for a number of reasons.

First, an internet-enabled smartphone is a requirement to log into the Uber app, hail a cab and pay for a ride. In my estimation, there is no more than 15% unique user smartphone penetration in Kenya today.

Second, card users are often encouraged to use credit cards rather than debit cards. This is because the potential for debit card fraud is higher than credit card fraud, and credit cards allow someone to dispute transactions after they happen.

Third, on-demand taxis are not a de riguer means of transport in the local Kenyan context. Over the years taxis are considered a luxury, left for the privileged few and foreign mzungus. As a result, taxis generally charge exorbitant rates compared to other East African markets. A lot is therefore required on Uber’s part to change the mindset of this untapped market.

To date, various taxi companies have been clever in employing triggers and word-of-mouth marketing methods to sign up new customers. Uber currently awards Kshs 1,000 worth of a ride to customers for successful referrals; Easy Taxi and Maramoja Taxi offer Kshs 400 and Kshs 300 account credit respectively, that can be taken off your first ride. Easy Taxi also provides free wifi on board its cabs.

The problem with mobile money

Although customers currently have the option to pay for travel using mobile money, they can only pay directly to the drivers’ individual mobile money wallets since there is no direct link between Uber and the providers’ platforms. With the upgrade of M-PESA platform to G2 and an open application program interface (API) for third party integration, it makes sense that Uber integrates with mobile money to make the payment process seamless and more convenient for the payer.

On the other hand, integration with a mobile money provider platform in itself will not be enough, not even in Kenya. In spite of all the hype about mobile money, cash is still king in Kenya. Mobile money accounts here are often used only once or twice a month and the estimated median amount stored in them is about US$20, sometimes US$10. Therefore, a rider would more than likely pay in cash rather than mobile money since their mobile wallets are empty.

Besides, as it is right now, most of Uber’s clients are expatriates and Kenyans from the diaspora familiar with the service due to its global brand and a past experience. Apart from those intending to be in the country long-term most of these expatriates do not have mobile money accounts.

Why cash remains king

Uber’s move to cash payments and mobile money demonstrates the company is adapting to the local context. Its direct competitors such as Easy Taxi, Maramoja and Pewin Cabs, have been accepting cash and mobile payments since they launched.

It is also a common occurrence for Kenyan banks to erratically reject payments on online platforms such as Uber as a fraud prevention measure. Cash is more reliable for both Uber and its customers in this aspect.

As long as mobile money wallets continue to be empty and customers store their monetary value in cash rather than electronically, people will continue to be reluctant to pay services via mobile money. This is true not only in the Uber context but across all sectors. Currently, the most common motivator for Kenyans to pay for something electronically is if it will save them queuing time. Recently for instance, the Kenyan government tried to implement cashless payments in the wider public service vehicle sector – and it was a dismal failure.

In essence, a lot more needs to be done to maximize innovations in the taxi space, and only time will tell what the real impact an integration of Uber with mobile money would have on uptake and usage relative to cash.



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